IFC requires that this document is made available through the World Bank InfoShop and to the locally affected community no less than 30 days prior to project consideration by the IFC Board of Directors. The Summary of Project Information (SPI) also provides details of where the ERS has been made available to the locally affected community. The SPI must be sent to World Bank InfoShop no less than 30 days prior to project consideration by the IFC Board of Directors.

This is a category B project according to IFC’s environmental review procedure because specific impacts may result that can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria. The review of this project consisted of visits to production facilities, consultations with the project sponsor’s management, and appraising technical and environmental information submitted by the project sponsor. The following potential environmental, social, health and safety issues and impacts of the project were analyzed. - Raw material sourcing and use of sustainably harvested woods; - Environmental, health and safety management systems - Source and quality of environmental emissions (e.g. air, wastewater and sewage, noise); - Occupational health and safety conditions in all facilities; - Life and fire safety standards of all facilities; and - Labor relations.

The sponsor has presented a Corrective Action Plan to address these impacts, and to ensure that the proposed project will, upon implementation of the specific agreed measures, comply with the environmental and social requirements - the host country laws and regulations and the World Bank Group environment and social policies and the environmental, health and safety guidelines. The following paragraphs provide a discussion of each of these issues and how potential impacts will be mitigated by the Project sponsor. Raw material sourcing: PMI procured approximately 26,000 m3 of wood in 2004. Approximately 70% of this total is procured from domestic sources of Acacia, Kaia (a proxy wood for Mahogany) and Rubber in the form of roundwood. Another 14,000 m3 of Acacia roundwood is imported from Sabha, Malaysia. In addition, the company imported 500 m3 of pine from New Zealand, 3,700 m3 of assorted hardwoods from the United States in the form of kiln-dried lumber and Medium Density Fiberboard (MDF) from Indonesia. The company also sources veneer woods from international suppliers who draw from sources in Latin America, the South Pacific and Europe PMI has pioneered the use of Acacia – a wood more commonly used for the manufacture of pulp and paper – for indoor furniture manufacturing. The company procures its domestic supply of Acacia and Kaia through established suppliers who are licensed to purchase, harvest and export timber from forest areas managed by local government committees. Rubberwood is purchased from government plantations, which are continually harvesting trees that have reached the limit of their commercial productivity to make way for new plantation. In addition, the company is currently engaged in a joint venture with a local government authority in Dac Lac province that manages a 600 hectare Acacia plantation, which will be ready for harvesting within six years. The success of the plantation venture has encouraged the company to consider developing an additional 800 hectares of Acacia plantation under the same joint venture arrangement. The company does not subscribe to any internationally recognized system of sustainable forest management or forest product sourcing. It depends on the integrity of its domestic and international suppliers to source raw material from legal harvesting operations, and does not rely on any independent third-party to verify raw material sources. In the interest of promoting sustainable management of tropical forest resources, IFC will collaborate with PMI to develop a preferential sourcing policy for sustainably harvested wood supplies and a system for ensuring a traceable “chain of custody” to sustainable managed forests based on established international practice. In addition, and in compliance with World Bank Group (WBG) Forestry policy, IFC will require the company to obtain certification under an independent forest certification system acceptable to IFC of its Dac Lac Acadia plantations as meeting standards of responsible forest management and use. Environmental, health and safety management systems: The PMI Human Resources (HR) Division is responsible for the management of environmental health and safety in all Company facilities. The HR Division was awarded ISO 9001 certification in December 2004. The Company continues to refine and strengthen the systems for environmental monitoring, workplace health and safety, emergency response, security and human resources management developed to qualify for ISO certification, as described below. - Source and quality of environmental emissions – The government Department of Science and Technology maintains quality standards for potable water, wastewater, ambient and point source air emissions, workplace noise, dust and temperature, and provides certification of compliance to each facility on an annual basis. The Company submits regular monitoring reports to the HEPZ Authority for its two main facilities, and to the municipal authorities or its Saw Mill and Ceramics/Foundry plant. - Wastewater emissions – All PMI facilities draw potable and process water from municipal sources. Both furniture making facilities (TAHL and SFF) are equipped with separate wastewater treatment systems for process wastewater (activated sludge treatment) and general sanitary wastewater (anaerobic digestion treatment). The former system is designed to neutralize acids and precipitate heavy metals captured from the painting and finishing areas within each plant. Treated wastewater from both systems is discharged into drains maintained by the HEPZ. Monitoring reports indicate that all treated wastewater meets local as well as WBG quality standards for a majority of parameters. Sludge from both treatment systems is collected for disposal at sites maintained by the municipal authorities by HEPZ licensed contractors. Wastewater generated by the Ceramics/Foundry plant is treated by gravity separation and recycled in the clay and glaze-making process; sludge is recycled. Sanitary wastewater at both the Ceramics/Foundry plant and Sawmill is discharged into municipal sewers. Air emissions – All PMI facilities draw gas and electricity from the municipal grid. Point source air emissions monitoring data from factory and saw mill boiler stacks were not available, although ambient air quality measurements taken at the boundary of all factories are well within local and WBG standards. Stack emissions from the Ceramics/Foundry casting operations appeared heavy with particulates. As a condition of IFC financing, the company will be required to monitor stack emissions from all operations and ensure compliance with local as well as WBG standards. Solid and hazardous waste – PMI maintains a detailed set of procedures for the management of solid and chemical waste derived from the production process. All wastes are segregated and stored for disposal in a secure area on the grounds of each factory for disposal by licensed contractors. Internationally acceptable procedures are in place for the disposal of glues, solvents, lacquers and paints used in assembling and finishing furniture, and chemicals used in the antiquing and etching of metal furniture components, as well as medical waste from the Company’s clinic. Occupational health and safety conditions – PMI maintains high standards of workplace health and safety in all units. The company’s HR Division as established extensive procedures for workplace safety training for all employees based on the Japanese “kaizen” model of quality management on the shop floor. HR monitors workplace lost-time accidents, takes corrective action with each incident, and conducts refresher training for workers as required. Since the introduction of this quality management model, workplace accidents have been reduced by one-half to two thirds. The work areas at TAHL and SFF are adequately illuminated, organized and demarcated. Machines are equipped with appropriate safety guards and shut-offs, and access to machinery is restricted to trained operators. Material Safety Data Sheets are accessible in all workplaces where chemicals are used. General housekeeping is of good quality except for a number of chemical storage areas, which, although adequately secure, require better spill containment. Worker exposure to dust is within WBG limits in many woodworking areas of both TAHL and SFF factories with the exception of the sanding units of the original plant, where concentrations of dust exceed WBG limits. Similarly, worker exposure to noise also exceeds WBG limits in the majority of woodworking areas involving machinery. Workplace exposure to chemical hazards, e.g., volatile organic compounds from solvents and lacquers in the painting/finishing and antiquing areas is not monitored. Although water shields are installed at each paint booth, the booths are not contained and the smell of chemical fumes is strong on the shop floor, especially in TAHL. The company provides all employees exposed to workplace hazards with appropriate Personal Protective Equipment (PEP) as well as training in the use of the equipment. While workplace exposure to noise dust and chemical fumes noted above can be satisfactorily mitigated with the use of PEP, numerous lapses in the use of this equipment were observed during the inspection of TAHL and SFF. As a result, workers are exposed to immediate and potentially long term health risks. The Corrective Action Plan outlines an approach to mitigating risks. Occupational health and safety conditions in the company’s Sawmill and ceramics casting/foundry unit were satisfactory. Life and fire safety standards – The company maintains high standards of life and fire safety across all operations. Adequate numbers and types of fire fighting equipment are placed and clearly demarcated throughout all facilities. Water storage is also maintained at each facility for fire fighting purposes. Equipment is maintained and checked on a frequent and regular basis by dedicated staff within the HR Division. Fire exits are clearly marked and egress is unobstructed. HR has developed a comprehensive set of procedures and staff training for fire fighting and managing accidents involving hazardous materials, which are consistent with international standards. However, pressurized dust collection systems serving the carpentry shops, particularly the sanding units, should be outfitted with sensors to reduce the risk of sparking and ignition. This precaution is particularly pressing because of the proximity of the dust collection “bag house” to both TAHL and SFF buildings and the potential damage that an explosion in the bag house would cause. Mechanical sprinkler systems are being installed in the SFF plant, and these should be installed in the TAHL plant as well. The Corrective Action Plan outlines an approach to mitigating these risks. Labor relations: PMI’s employee headcount for all Vietnam-based operations in December 2004 was 8,300. The company maintains a detailed and transparent set of human resource policies procedures for all levels of staff that are of international standard. These policies and procedures comply with the Vietnamese Labour Code and are generally consistent with International Labor Organization Core Labor Standards. Pay scales and benefits exceed Vietnamese minimum standards. All new staff are provided with orientation to the company’s employment policies and procedures as well as occupational health and safety training. All employees are provided with a wide range of training opportunities to upgrade their skills, improve their performance and obtain advancement within the company. Like many labor intensive industries in Ho Chi Minh City, PMI experiences a relatively high rate of employee turnover in the low-skill ranks (+/- 10% per year) due to the transience of the labor pool, which is drawn largely from the central and northern regions of the country. Nonetheless, PMI is a conscientious and responsible employer with a high regard for employee welfare.

This ERS and the attached Corrective Action Plan contains the full environmental and social documentation prepared for the project.

Based on its review of available information regarding potential environmental and social impacts and proposed mitigation measures, IFC concludes that the proposed project will meet all applicable World Bank Group policies and environmental, health and safety guidelines as well as Vietnamese government regulatory requirements.

IFC will monitor compliance with World Bank Group policies and guidelines requirements during the life of the project. The company will submit annual environmental monitoring reports. IFC will evaluate these monitoring reports and require the elaboration of remedial measures as needed to maintain compliance. IFC will also conduct periodic site reviews during project supervision.